Illinois may find out Aug. 15 whether a lawsuit seeking to invalidate more than $14 billion in debt issued by the worst-rated state can move forward.

A hearing in the circuit court of Sangamon County may determine if the lawsuit, filed July 1, has standing or should be thrown out. Warlander Asset Management, a New York-based hedge fund, and John Tillman, chief executive officer of the Illinois Policy Institute, a conservative think tank, claim the state’s record pension bond sale in 2003 and debt issued in 2017 were deficit financing prohibited by the state constitution. Illinois officials have dismissed the...